$44 Billion Floods Into Mutual Funds in July, With 59% Going to Bonds

Investors dropped almost $44 billion into open-end mutual funds in July, bringing the year-to-date total for inflows to $171 billion, according to data released by Morningstar. Taxable bond funds were the overwhelming favorite, taking 59%, or $26 billion of July's proceeds.

Investors continued the love affair they've carried on with intermediate- and short-term bonds since January; in fact, almost half of the proceeds to taxable bond funds went to intermediate-term funds. About $22 billion has gone into the short-term bond category this year, which is 10 times the amount that investors allocated to the category during the same period in 2008. This suggests "although investors are coming back, they are still exhibiting a hunker-down mentality," said Sonya Morris, an analyst and editorial director at Morningstar.

A few investors are demonstrating a renewed appetite for risk. Domestic and international stock funds collected $3.6 billion and $5.5 billion, respectively. The diversified emerging markets category was very popular, attracting $2 billion.

High-yield bond funds took in $15 billion so far this year, compared with just $642 million and $2.8 billion at this point in 2008 and 2007, respectively. Yet some high-yield bond managers remain wary of heightened corporate credit risk and are being very selective about the securities they choose, according to Morningstar.

As for fund families, most of them saw inflows in July. Vanguard, PIMCO and Fidelity all did particularly well. Vanguard solidified its No. 1 position, overtaking American Funds, which held the top spot last year. Boston-based MFS made up lost ground by taking in $1.2 billion, the largest monthly inflow the firm has had since 2007.